Gov. Mark R. Warner (D) asked lawmakers today to close Virginia's remaining $1.2 billion budget shortfall with a combination of cuts, fee increases and agency consolidations that he said would streamline state government for years to come.

"Let us not lose sight of the unique moment we have to reform state government for the 21st century," Warner told the Republican-dominated budget committees of the General Assembly. The legislature's 46-day session convenes Jan. 8.

GOP leaders generally supported the changes Warner proposed to the 2002-04 budget, noting that the economic slump that pinched state revenue also crimped Warner's ability to launch any costly or especially controversial initiatives.

"It's an excellent start," said Senate Finance Committee Chairman John H. Chichester (R-Stafford), a key Warner ally in the assembly. "Basically, there are very few choices remaining."

Added incoming House speaker William J. Howell (R-Stafford), "Some of his ideas are ideas that we've been supporting for some time," such as abolishing outdated agencies.

Warner followed the advice of his commission on government efficiency in proposing 10 agency consolidations, including the merger of the Milk Commission into the Agriculture Department and the state Council on Human Rights into the attorney general's office.

The governor proposed $442 million in outright cuts, including reductions in state aid to localities, some funding for Medicaid providers, aid for businesses and other programs. The governor also recommended more than a dozen new or increased fees, such as a $20 increase for saltwater fishing licenses for recreational boats and a $10 increase in the reinstatement fee for motor vehicle licenses.

Although Warner has denounced one-time budget fixes by past governors as little more than accounting "gimmickry," the governor said he was willing to employ some of his own, so as not to "substantially damage our most basic services."

Warner proposed dipping into the state's "rainy day" fund in each of the next two years -- for $246 million in June and $129 million in the summer of 2004 -- to help balance the budget. Warner also said he wants to have a two-month tax amnesty starting in September that would generate $39 million.

Ten years ago, a similar one-time amnesty raised $30 million.

Warner's tone today was strikingly optimistic, in contrast to the gloomy image he projected in October, when he took to statewide TV to announce $858 million in emergency spending cuts and 1,837 state government layoffs. This year, Warner and the legislature cooperated on a plan to close a $3.8 billion shortfall.

At the time, Warner raised the specter of cuts to public schools and Medicaid, and a short time later, his chief financial adviser warned that some "sacred cows" of state spending would be "slaughtered."

Those debilitating cuts never materialized, which Warner attributed to the beginnings of a turnaround in the Virginia economy. That optimistic forecast of a rebound, coupled with the severe cuts and layoffs he ordered in October, made it possible for him to leave vital services such as education, public safety and transportation more or less intact, Warner said.

"By acting aggressively in the summer and early fall, we saved ourselves the much more draconian actions that many states are just now beginning to face," Warner told the committees.

Reimbursement rates at hospitals, nursing facilities and health maintenance organizations were frozen in Warner's plan, saving $61 million. Controls on prescription drug costs would save the state $15 million, the governor said.

A number of Republicans who sit on the House panels on appropriations and finance said their task would be easier if the governor released budget reduction documents prepared by his agencies. Warner has refused, saying governors are not required to release such working papers.

"It's already been dug up -- why can't we have it?" Howell said.

The squabble may be an omen of a contentious session between Warner, who will be starting his second year as governor, and Republican lawmakers eager to press their own agenda and pet spending plans before the November elections for all 140 legislative seats.

"Next year is an election year, so we'll see some home cookin'," Chichester said.

On the economic front, Warner told reporters later that several indicators -- including the state's lowest unemployment rate in 14 months and an uptick in Northern Virginia job creation -- have led him to believe "that we have bottomed out" in the downturn.

However, Warner quickly added, "I'm not ready to declare victory yet." Warner had sounded a similar warning to lawmakers, saying a mediocre recovery means "we will again experience a difficult budget next year."

Del. Robert H. Brink (D-Arlington), voicing a budget view shared by many lawmakers, said: "It's not nearly as bad as it might have been. My biggest concern had been cuts in core services. That hasn't happened."

Ruth Nelson, president of AARP Virginia, said she was pleased that Warner's budget maintained a safety net for the elderly, but she also criticized him for not doing more on unmet medical needs.

"There are still a lot of Virginians that will not have health and long-term care as a result of the governor's recommendations," Nelson said.

Alan G. Merten, president of George Mason University, said that while his school suffered no major hit in Warner's plan, it could take years to recover from recent budget cuts.

"We're definitely going to raise tuition in the fall," Merten said. GMU recently ordered a midyear tuition increase but is unable to handle more students or support the buildings now under construction, Merten said.